A Closer Look at Libra’s Ecosystem
TOP REASONS WHY LIBRA IS REVOLUTIONARY (№3 OF SERIES)
Unlike most blockchain projects, Libra has taken the approach from the top down, by forming a multilateral institutional partnership with 28 organizations (“Initial Partners”). This approach appears rather centralized from the perspective of certain crypto purists, but I believe it is a great move. This tactic guarantees that Libra has aligned strategies, goals, roadmaps, and resources to take off. More importantly, it makes the most value out of Libra’s branding to attract more global organizations and individuals to be part of the project.
It’s an incredible achievement to get so many leading players from different sectors to buy in to the same mission. In particular, competitors like transportation leaders Uber and Lyft as well as card association giants Visa and Mastercard, all joined Libra. It is an unprecedented global level collaboration, leaving behind the competition and conflict. Credit goes to Facebook who has been leading the charge.
Like early employees’ influence on startups, early members of a partnership determine the fundamentals. The 28 Initial Partners lay out the structure of the Libra ecosystem and its direction. Understanding the partnership and its partners’ motivations is meaningful to comprehend the problems that Libra tries to tangle with and how it plans to solve them.
Libra categorized the 28 Initial Partners into 6 industries, and below shows the breakdown of the number of companies in each industry. You can see that it has a relatively even distribution
The technology and marketplaces industry makes up the majority of the partnerships. Each of the 8 global industry giants is globally recognized from social media (Facebook), travel (Booking Holdings), entertainment (Spotify), transportation (Uber and Lyft), and e-commerce (eBay, Farfetch, and Mercado Pago). Each one serves millions to billions of users every day all over the world.
The second biggest industry is payment, which has 5 organizations. On one hand, bank card associations Visa and Mastercard which have been in the financial market since the end of the 1950s and the early 1960s became pillars of the financial infrastructure. On the other hand, FinTech firms PayPal, Stripe, and PayU represent the intersection of technology and finance.
Venture capital firms also have 5 organizations, the same as payment. a16z, Union Square Ventures (“USV”), Ribbit Capital and Thrive Capital are all well-known investors, in particular for high profile FinTech portfolios. They have had co-investment histories, and they are also investors of two Initial Partners, Coinbase (by a16z, USV, and Ribbit Capital) and Stripe (by a16z, USV, and Thrive Capital). Breakthrough Initiatives where Zuckerberg, the founder and CEO of Facebook serves as a board member is not a traditional VC firm. It offers programs for scientific and technological exploration.
The blockchain group has 4 organizations, Coinbase, Anchorage, xapo, and BisonTrails who have footprints in digital wallets, cryptocurrency custodian solutions as well as blockchain infrastructures. Among these, Coinbase is probably most recognizable in the crypto space as it already serves 20 million crypto users in the globe and has handled US$150 billion trading volume transactions.
The nonprofit and multilateral organizations (“NPO”), and academic institutions group also has 4 organizations. Creative Destruction Lab, the sole academic institution, provides not-for-profit seed-stage programs to companies. KIVA, Mercy Corps and Women’s World Banking all strive to work for bank-underserved people’s financial inclusion in the world. KIVA connected 3.3 million borrowers with 1.8 million lenders in 78 countries, facilitated US$1.32 billion loans. Mercy Corps reached 22 million people, connected 1 million people with cash and infused US$ 46million into local economies. Women’s World Banking reached 30 million women and 53 institutions in 32 countries.
Libra wants to recruit a diversified portfolio of businesses and the 28 Initial Partners is a good start.
Libra also emphasizes that Founding Members should be geographically distributive. As shown in the chart of the Initial Partner’s headquarters, the U.S. clearly is the main jurisdiction.
Though the headquarters are mainly in the U.S., all of the Initial Partners have global business networking through its global offices, users, business partners, and investment portfolios.
It is notable that one common characteristic of the 28 Initial Partners’ is their global footprint. The operation at a global massive scale allows the partners to experience and reflect one of the long-standing global problems, the finance infrastructure. As mentioned in my previous article, the global payment system is heavily dependent on banks and SWIFT. The mainstream finance organizations can hardly initiate a self revolution for its business and infrastructure due to the complexity of internal (e.g. strategy, business, and technology) and external (e.g. governmental supervisions) reasons. Thus, as a common cause, every partner is pushed and pulled to look into a solution that is not to change the existing finance system but to build one layer above such architecture by leveraging blockchain to cut down the cost for transactions and take down the barriers for consumers, including the 1.7 billion bank-underserved individuals.
Surely, each partner from its own business strategy and industry’s perspective may expect different benefits from joining Libra.
Facebook: As the leading role of Libra, its business agenda hides behind Calibra, the wallet designed for Libra. It may be a strategic twist and add a new line of payment and finance business to Facebook whose revenue is almost entirely generated from advertising by utilizing its network of the 2.7 billion users. In addition, Libra could also be a better solution to address the issues pertaining to users’ identity and data usage.
Technology and marketplaces: Besides Facebook, the other 7 partners deal with millions and billions of users all over the world for their consumptions and provisions of services and products on a daily basis. Payment is the most important and necessary tool for every single transaction. Cutting down the cost and increasing efficiency could be a game-changer. As mentioned by eBay and Farfetch in their announcements, the partners also look forward to utilizing the platform to improve the transparency of products and IP protections.
Payment: Whether payment companies like it or not, blockchain is shaking up the payment industry. There has been more push than pull for some than others to take a step closer to innovation. There had not been a high profile blockchain project with proper structure in terms of compliance and incentive for payment companies to be part of until Libra. Libra is the first and so far the only chance for payment companies to engage with the market leaders from different industries to learn from and share with them. It is also an opportunity to provide a voice for the design of the architecture, operation, and technology of Libra from the payment companies’ perspective.
Venture capital: The venture capital firms who participated in Libra have invested many portfolios in the crypto space and FinTech industry. They may leverage Libra to accelerate their portfolios’ ecosystem. As shared by USV, a distinguished motivation compared to other industry players is that venture capital firms could experiment with a new finance structure product by investing in Libra Reserve from a financial investment perspective.
Blockchain: The most direct beneficiary group from Libra are blockchain companies. Infrastructure and solution providers gain new and more business opportunities. It may be the first time that this industry is truly working with other industry leaders to make massive adoption a real possibility. Exchanges and wallets’ business will surely be boosted from the launch of Libra.
NGOs and academic institutions: NGOs’ target audience are those people who are underserved by banks. Therefore, NGOs have been an advocating group of blockchain for the potential payment use cases. Libra will bring more financial inclusion to more people around the world so that NGOs may reach out to more people at a much lower cost. Libra may further help unbanked customers to enable verifiable identity and credit history, as indicated by Kiva.
Telecommunications: There have been massive discussions about how blockchain can influence telecommunication and related businesses. Though neither Vodafone nor Iliad made a detailed explanation about why they participated in Libra, one could imagine that similar to Visa and Mastercard, they intend to be open to explore the technology and potential business opportunities and more importantly, to make its voice to be heard for the technology and policy design, from a telecommunication and also Europen company’s perspective.
4. Who’s Missing?
To be sure, there’s a diverse variety of Initial Partners, but it is also noticeable that certain groups are not on the list. They may or may not be on the way to being recruited as founding members of the Libra Association.
Banks: As mentioned above, Libra is building on top of the layer of the existing banking system. Banks are not the target audience of Libra’s ecosystem in its current stage. However, banks are the must-have bridges to convert fiat money to cryptocurrency or vice versa. In the document about the Libra Reserve, it explains how Libra will be linked and transacted with fiat currencies. Libra is expected to work with banks at a later stage when Libra is about to launch.
Companies with HQs in Asia and developing regions: The majority of the Initial Partners come from the U.S., with some from Europe. This is probably because of Facebook’s leading role and its strength at its own network in the U.S.. China, Japan, Korea, Singapore, and other Asia countries have significant market influences in technology, finance, and blockchain areas but the organizations in these markets may not be familiar to nor convenient for Facebook to initiate the conversations about Libra now. However, Libra has made Chinese, Japanese, and Indonesian as choices of the languages on its website, so it is possible that more companies from non-U.S. and non-Europe regions will join in the future.
Facebook’s competitors: In Libra’s partners’ business valuation criteria section, Libra explains that members of the Libra Association are “open to partnering with businesses that compete with each other”. This is why Visa and Mastercard, and Uber and Lyft are all on the list of the Initial Partners. However, Facebook’s competitors such as Google, Twitter, LinkedIn are notable absences in Libra’s network so far. Facebook is the only social media or company that largely generates income from advertising in the Libra ecosystem.
5. Looking Ahead
The 28 Initial Partners are the first batch of organizations who joined Libra. Libra is openly recruiting more companies, NGOs and academic institutions to join as “founding members”. The next goal set by Libra is to have approximately 100 members by the target launch in the first half of 2020.
The ultimate goal for Libra is to develop the aforementioned permissioned system which is built upon the partnerships and operation mechanism of validator nodes as well as the governance of Libra Association to a permissionless system so that everyone who has the technical capability to run nodes can use and develop Libra. This is the ultimate ecosystem that Libra aims to build. It may take years or even decades, but the day will come one way or another.